The commission yesterday issued a draft report from its review of Bass Strait shipping and transport. It said it found deficiencies in the design and operation of the Tasmanian Freight Equalisation Scheme, Bass Strait Passenger Vehicle Equalisation Scheme and the Tasmanian Wheat Freight Scheme.

"The design and administration of the current subsidy schemes are outdated, resulting in outcomes not well aligned with the schemes' underlying objectives," commissioner Karen Chester said.

"The embedded administrative complexity also gives rise to anomalies and some perverse incentives.

"The commission found the scheme encourages processing of some Tasmanian products to shift to Victoria, to qualify for the freight subsidy." Preliminary recommendations include:

TFES payment rates be based on contemporary data, with regular reviews.

TFES payments be made on a flat rate basis.

Getting on with the Abbott government's review of coastal shipping regulation to reduce the cost of Australian shipping.

The commission also wants policy initiatives and reform to address what it calls "the widening gap between Tasmania and mainland jurisdictions and address lower income growth and labour productivity, higher unemployment rates and social disadvantage".

Tasmanian Farmers and Graziers' Association chief Jan Davis said analysis and debate had to refocus on the freight scheme's original reason for being. "There is no road across Bass Strait," she said. "If it cost $500 to deliver goods across 300 kilometres in Victoria, then it should cost Tasmanian producers no more than $500 for the same distance."